4 Things Financial Advisors Want Their Clients to Know About Long-term Care Insurance

By Andrew Sponaugle

Like the old adage goes, failing to plan is planning to fail. You insure your home, your car, maybe even your life without so much as a second thought, but have you thought about how you will pay for the unknown care needs of your future self? With healthcare costs outpacing inflation over the past several years (and likely continuing), it is incumbent upon us, as financial advisors, to provide education and to discuss options for what could potentially be a significant expense for clients in their latter years. Here are four things we want you to know when considering your options:     

1.  Long Term Care (LTC) is not synonymous with medical care (or Medicare for that matter). 

Generally speaking, LTC is simply assistance provided for routine tasks of everyday life. These tasks may include: eating, bathing, dressing, getting out of bed, and shopping for groceries. Health insurance does not cover these costs and Social Security offers little to no assistance. The need for such services can range from physical deterioration/disability to cognitive impairment/dementia. 

2.  More than half of individuals 65 and older will require some type of formal LTC services during their lifetimes (Benz, 2018), and the price tag could leave you with sticker shock. 

With longer average life expectancies and, in many cases, not having a spouse to provide assistance, women are statistically more likely to require LTC care (According to Benz, 47% of men, and 58% of women). Regardless of gender, the duration of care required can range widely from as little as a few months to a decade or more in the case of progressive dementia and Alzheimer’s disease. The costs are variable and could potentially derail a seemingly sound financial plan.Cost of care can also vary widely across the country. The median annual cost for Virginia in 2018 was $48,000 for a home health aide and $102,000 for private nursing home care, with a five-year expected annual increase of 3% and 4%, respectively.  Comparatively, similar costs in New York for a home health aide were $57,000 and $146,000 for private nursing care over the same period. (Cost of Long Term Care | 2018 Cost of Care Report)

3.  There are options.

Traditional LTC policies, like other forms of insurance, generally require annual premium payments; the policy benefits are available if an LTC event occurs. If an insured does not use the benefits over the course of his/her lifetime, they are essentially lost, and the policy terminates. While still appropriate in some situations, aside from potentially not having benefits to show for lifelong premium payments, another drawback is that the premiums can increase from year-to-year. While underwriting has improved greatly, many policyholders continue to face periodic unexpected cost increases.   

Hybrid LTC policies have risen in response to the “use it or lose it” drawback of most traditional LTC policies. A hybrid is a permanent life insurance policy at its core with an LTC rider allowing for accelerated benefits to be paid for a qualifying LTC event. These policies provide a pool of money from which benefits may be drawn for LTC needs or, if these expenses are not required during the insured’s lifetime, a death benefit paid to the policyholder’s beneficiaries. Additionally, these policies can be paid in a lump-sum or over a period of years (usually up to ten). This ensures that the annual cost cannot increase over time. The notion of a guaranteed benefit, either as LTC or life insurance, and premiums that won’t increase over time, is often appealing and more practical than the traditional option.

Note: Nearly all insurance providers and policy types provide qualified, tax-free benefits for the following services:

Home Health Care               Memory Care Facilities

Assisted Living Care          Adult Day Care

Nursing Home Care          Hospice Services

4.  LTC provides access to aides and skilled nurses who can provide professional care when a family member cannot.

Aside from the financial impact of an LTC event, we believe there are other considerations when determining whether a policy is suitable for our clients. In many cases a spouse or a child assumes the responsibility as the primary caregiver for one who needs care. Over time, this can be extremely difficult, both emotionally and physically, and can compromise the dynamics and lifestyle of the family. Having a policy in place can relieve the burden of family members who feel compelled to provide care to loved ones. 

Long Term Care is difficult to plan for, but as the industry has evolved, carriers have adapted their offerings to provide unique solutions to address the uncertainty and potential costs that could adversely affect one’s retirement plan. Self-insuring is an option for some clients but knowing all of your options is important. We encourage you to reach out to your advisor with any questions. If you have an existing LTC policy, we will happily review it and determine if it still aligns with your family’s needs and goals. Evermay does not provide insurance to clients directly, however we work with trusted partners that represent quality insurance carriers.  If necessary, we would be happy to make an introduction to help find a solution that makes sense for your unique circumstances. You may not need LTC insurance, however, you do need a plan.   

Benz, Christine. “75 Must-Know Statistics About Long-Term Care: 2018 Edition.” Morningstar.com, 20 Aug. 2018, www.morningstar.com/articles/879494/75-mustknow-statistics-about-longterm-care-2018-ed.html.

“Cost of Long Term Care | 2018 Cost of Care Report.” Genworthwww.genworth.com/aging-and-you/finances/cost-of-care.html.